Update: Do Insurance Companies Use Scam Artists to Sell Unsuitable Annuities to the Elderly?

According to the Government Accounting Office (GAO) Americans over 65 hold more than $15 trillion in assets and, with “Baby Boomers” soon reaching retirement age, that figure will likely balloon. As financial firms, including insurance companies, design products aimed at this pot of gold, scam artists lick their chops for a piece of the action. Unfortunately, their paths cross.

As we very recently reported, a federal judge in Hawaii dismissed a class action suit against Midland National Insurance saying that, because different sales pitches were used by different salespersons, the claims by elderly Hawaiians can not go forward. Meanwhile, regulators warn that scam artists are selling insurance products to the elderly. Thus, it appears that insurance companies can simply look the other way while con artists victimize the elderly using their annuities. [OUR FIRM PURSUES CLAIMS ONE AT A TIME TO AVOID THIS PROBLEM.]

A NY Times article today reports that a Massachusetts insurance agent became a “certified senior adviser” then advertised this and other credentials to retirees. Yet, he did not mention how easily he received that title: He paid $1,095 for a correspondence course, then took a multiple-choice exam with dumbed-down questions. The agent, and over 18,700 other applicants since 1997, passed the course.

The article further states that insurance companies, eager for sales representatives, embraced this agent as they have thousands of other such newly credentialed advisers. As his retiree business boomed, insurers paid the agent commissions over $720,000 the following year.

Massachusetts regulators then stepped in, filing a lawsuit claiming the agent improperly sold annuities and other products to the elderly. While the agent denies any wrongdoing, one of his clients – a 73-year-old widow caring for a son with Down syndrome – said he tricked her into buying complicated insurance contracts that left her unable to pay dental and home-repair bills. “His office was filled with things saying he was certified to help seniors,” she said
According to the Times article, this salesman is one of tens of thousands of financial advisers who work hand-in-hand with insurance companies to reach “older Americans using impressive-sounding credentials like ‘certified elder planning specialist,’ ‘registered financial gerontologist,’ ‘certified retirement financial adviser’ and ‘certified senior adviser’.”

In only a few days, titles are obtained sounding similar to “certified financial planner” (CFP), and other credentials that require years of study, difficult tests and extensive background checks. “The degree isn’t worth the paper it’s written on,” said another Massachusetts financial adviser, who took the certified senior adviser exam but does not use the credential. “It’s a scam – a way to put a title on a business card that impresses gullible seniors,” he said.

Advocates of the elderly complain that scam artists, many using such credentials, often give financial advice they are not qualified to offer. Yet, an overwhelming number are being paid by country’s largest insurance companies – including Allianz Life, Old Mutual Financial Network and American Equity Investment Life Insurance – to sell elderly clients complicated investments that economists say most retirees should never own.

Some programs linked to insurance companies have taught agents to use abusive sales techniques, regulators say. Allianz, Old Mutual and American Equity have been listed as sponsors of seminars with names like the “Million Dollar Academy”, where thousands of sales representatives were advised to scare retirees by saying, “I am all that stands between you and potential catastrophic loss.” Other seminars instructed agents to “drive a wedge” between retirees and their established advisers.

“The insurers are happy to turn a blind eye to what salesmen are doing, as long as they make a sale,” said Minnesota’s attorney general, who is suing several companies, including Allianz, contending their products are inappropriate.

Allianz, Old Mutual and American Equity, whose revenues last year were a combined $163 billion, said they investigate the backgrounds of all agents, screen all sales to consumers to make sure they are appropriate, and have terminated representatives using improper sales methods. Those companies said they were not aware of abusive methods taught at any seminar they endorsed and otherwise distanced themselves from such tactics.

The North American Securities Administrators Association, an association of state regulators, reports that over one-third of all cases of financial exploitation of the elderly involve annuities. Hundreds of class actions have been filed against insurers over annuity sales to the elderly, including one in Minnesota against Allianz for nearly 400,000 plaintiffs. Yet, the latest ruling in Hawaii may change that.

Sales agents accused of wrongdoing say they followed the guidance of insurance companies. “I did what I was told,” says the agent charged by Massachusetts regulators …”If it was so wrong, why did everyone let me do it for so many years?”

Meanwhile, insurance companies pay commissions on annuities which are often two, three or even 10 times the amount paid on mutual funds, which have more strictly regulated cost disclosures. Such high and difficult to ascertain commissions are no doubt a factor in why annuities sales, according to the Insurance Information Institute, reached $182.8 billion last year.

Shepherd Smith and Edwards is a securities litigation firm dedicated to helping those who are victims of investment fraud to recover their losses. We have filed hundreds of claims involving improper sales of annuities to retirees and others. Contact us today to schedule a free consultation.